John A. Kilpatrick Of Greenfield Advisors On 5 Things You Need to Create a Highly Successful Career in the Commercial Real Estate Industry Today

The commercial real estate industry is a dynamic and challenging landscape that offers enormous potential for success. However, it requires a unique blend of skills, knowledge, and aptitude to truly excel. How does one establish themselves in such a competitive field? What does it take to consistently rise to the top in commercial real estate? How does one rise above the headwinds that are challenging the commercial real estate industry today? In this interview series, we are talking to commercial real estate professionals, brokers, investors, leaders of Real Estate Firms and Real Estate Investment Trusts (REITs), as well as anyone who’s found significant success in this industry. As part of this series, we had the pleasure of interviewing Dr. John A. Kilpatrick.

John A. Kilpatrick, Ph.D. , MAI, is the Managing Director of Greenfield Advisors , headquartered in Seattle, and has over 35 years’ experience in finance, real estate and business development, statistical and financial analysis, consulting, teaching, and corporate finance. He also serves as a Director of the Washington State Economic Development Finance Authority, having been appointed by Governor Jay Inslee in 2017, and in 2020 served as an adjunct professor of finance at Washington State University. Dr. Kilpatrick is the co-holder of a patent on Automated Valuation Models and is the author of Real Estate Valuation and Strategy (McGraw Hill, 2020), as well as 5 other books and over 100 book chapters, journal articles, and monographs on real estate finance. He is also Managing Director of ACCRE, a REIT fund-of-funds.

Thank you so much for joining us in this interview series! Before we dive in, our readers would like to learn a bit about your origin story. Can you share with us the ‘backstory’ of how you got into the real estate business?

I was enamored by real estate even as a kid. I was working on Wall Street (Dean Witter, now Morgan Stanley) and one of my clients was a real estate developer. One thing led to another, and I ended up on his team as his CFO. (The actual story doesn’t go in nearly such a straight line, but that’s the gist of it.)

Can you tell us about your company and what makes it stand out?

Greenfield Advisors consults on real estate “problems”. Nearly every project starts with someone’s attorney calling us to say “I’ll bet you’ve never heard of this problem before!” We only take on intractably difficult projects, focused on the economic, market analysis, and valuation components of the problem. I’m presently working on numerous “rails to trails” problems (In America, we convert about 2,200 miles of abandoned railroads into public space every year, but this often has significant implications for adjacent property owners.) We have literally ‘written the book’ on valuation of environmentally impaired properties, such as brownfields, on the valuation impacts of tunnel easements, and on the economics of trophy property.

Ok, let’s now move to the main part of our interview about commercial real estate. What are the 3 things that most excite you about the industry now? Why?

Three things that excite me about the commercial real estate industry today are:

1. The increasing recognition that real estate investment is a fundamental component of a well-diversified portfolio. For many years, wealth managers and investment advisors have ignored real estate simply because they don’t understand it. Indeed, the CFA exam has scant material on real estate. However, family office managers in particular are realizing that real estate has significant tax, intergenerational transfer, and trust establishment advantages.
2. Many of the better universities have established Masters in Real Estate programs in the past few years. Previously, MBA’s came into the investment field with little or no training in real estate. The learning curve was often terrifically steep. Today, those investment firms are able to hire excellent talent from top-tier programs who understand the fundamentals of real estate.
3. Real estate requires a very long perspective. The current current real estate “down cycle” should be viewed as just that, and as such provides significant investment opportunities.

What are the 3 things that concern you about it? Why? What should be done to address and alleviate those concerns?

1. There is too much money chasing not enough good real estate.
2. Too many investors don’t know enough about real estate fundamentals
3. Too many projects have artificially short time frames.

If you had the power to put in place 3 changes to improve or reform the industry, what would you suggest?

1. Better regulation of publicly offered private REITs
2. More transparency for developer “promote” fees
3. Reform the appraisal profession to look more like the CPA profession

How has technology changed the commercial real estate industry, and how do you foresee it shaping the future of the sector?”

The changes are in amazingly subtle ways. The emergence of platforms like Loopnet and Crexi have made data much more available, but there still needs to be some standardization of that data. Google maps and Google Earth, ubiquitous photography, and on-line tax assessor data has been a revolution for analysts. Even at a granular level, property managers are able to forecast lease renewal demand with AI-assisted elevator stop data and heating/cooling demand. This sort of granular data (akin to the ‘market microstructure’ data that revolutionized financial analysis a generation ago) is just starting to come into its own.

I am hearing the phrase “Stay alive until 2025” a lot. What is your plan to survive in the current market?

I’m doing just fine, but I work on problem solving.

For a young person who would like to eventually make a career in commercial real estate, which skills and subjects do they need to learn?

A good, solid, general business education with a focus on financial analysis tools and a basic understanding of accounting. Some modest computer literacy is a must.

When evaluating deals or opportunities in real estate, what are the most important factors you look for and why? Can you provide some examples?

Be sure to understand the down-side. What happens if all of the projections stink? Let me give you an example. I’m presently developing a build-to-rent townhome community. If rental demand projections (or any one of a number of other things) go wrong, can we sell these units as owner-occupied or investor-owned single units?

Can you share a story with us about the hardest deal you made, that ended successfully for you?

It was about 40 years ago, and a number of small, private subdivision developers had gone out of business, leaving some banks holding the bag with failed land acquisition-and-development loans. One bank in particular had a huge portfolio of these and wanted to get rid of them, but didn’t want to get burned twice with another private developer failure. We worked for months structuring a multi-part deal involving two different banks, two brokerage intermediaries (one which was owned by the bank VP’s who had made the sour loans in the first place!) and our firm. We ended up buying an entire semi-developed subdivision. As it turns out, much of the engineering was faulty, and proper inspections had not been performed, so we had to forensically re-do the development specs, down to the point of digging holes to hunt for sewer lines!

Ok, here is the main question of our interview. Based on your personal experience and success, can you please share “Five Things You Need To Create A Highly Successful Career In The Commercial Real Estate Industry”?

1 . Get the right fundamental education (finance, accounting, real estate)

2 . Find a good firm in the niche that interests you and work as a junior level analyst or marketing apprentice for at least several years until you have a thorough graduate-level understanding of the field.

3 . Find a good niche that fits you well. That might be marketing, or property management, or consulting, or tenant representation, or whatever. People who are good analysts are often not very good sales brokers, etc., etc., etc.

4 . Recognize that you’ll have good years and bad years.

5 . Diversify your own personal portfolio. If you make 100% of your “income” on real estate, consider investing in the stock market to diversify your personal estate.

Do you have three things you would advise a new real estate professional to avoid?

1. Toxic work environments
2. Developers who don’t have “skin in the game”
3. Developers without local (geographic) competency

What is your favorite “Life Lesson Quote”? Can you share a story of how that had relevance to your own life?

I’ll give you a few. I recently wrote Real Estate Valuation and Strategy (McGraw Hill, 2020) and used a pithy, important quote at the beginning of each chapter. Here are a few choice ones:

Real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy — Marshall Field

Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. — Franklin Roosevelt

Landlords grow rich in their sleep. — John Stuart Mill

Ninety percent of all millionaires became so through owning real estate. — Andrew Carnegie

Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth. — Theodore Roosevelt

Don’t wait to buy land. Buy land and wait. — Will Rogers

The major fortunes made in America have been made in real estate. — John D. Rockefeller

How can our readers further follow your work online?

www.johnakilpatrick.com

This was very inspiring. Thank you so much for joining us!